Paying for Christmas

The most wonderful time of the year is quickly followed by the most miserable time of the year. Not because of the winter doldrums, but because of the credit card bills appearing in your mailbox. If you’re like many Americans who used credit cards to purchase gifts for the holidays, financial stress quickly replaces the joy and happiness of Christmas.

You may have the unfortunate realization that it’s going to take you months to pay off your Christmas gifts. Don’t feel alone. According to Consumer Reports, 13 million Americans (nearly 6% of the population) are still paying off last Christmas. If you’re only making minimum monthly payments on your credit cards, chances are you’ll be paying it off for several more years.

Do you know that there is another way to pay for Christmas? I will even go so far as to say that it’s a better way.

The best time to start paying for Christmas 2011 is right now. I’m not talking about taking advantage of all those after-Christmas sales to stock up on gifts. Instead, you can start saving money now to pay for your Christmas shopping next year.

The first step is deciding how much you want to spend for Christmas. If you’re married, you need to discuss this with your spouse and come to some reasonable agreement. You may have different families, traditions and expectations, so expect to compromise.

Let’s assume that you decide you want to spend $2,000 for Christmas gifts next year. Starting in January, take $200 and save it (that’s $50 per week). Open a separate savings account if you need to, or find a bank that offers Christmas Club savings accounts just for this purpose. With meager interest rates and bank fees, you might just stuff the cash under your mattress. The key is that you save it the money and don’t touch it until Christmas. It’s not an emergency fund or quick spending money; it’s for Christmas. If you put $200 aside each month, you’ll have $2,000 in cash by the end of October just waiting to be spent on great Christmas bargains.

But wait… what about the debt from this year? Wouldn’t I be better off using the $200 each month to pay off my credit cards?

That may sound like a good idea, but I say don’t do it. Reducing your existing debt and paying off your credit cards is a different discussion. Chances are this is the cycle you’ve been operating under for years. You charge it. You work all year to pay it off. When Christmas rolls around again, you haven’t saved any money for Christmas, so you charge it again. If you want to break the cycle, you’ve got to do something different.

I’m all for paying off credit cards and getting out of debt. However, you probably won’t achieve either of these without learning how to live within a budget and saving money to pay for future purchases. Even if you’re still paying for this Christmas next year, think of how great you’ll feel next year when Christmas is fully paid before Christmas. The stress and agony of opening bills in January will be history.

When it comes to paying for Christmas, you can pay now or pay later. If you start paying for next Christmas now, I think you’ll experience a lot more peace, joy and holiday cheer next year.